Keeping client money safe: Consumers seem to prefer TPMAs
Consumers are more comfortable with the idea of their money being held in third-party managed accounts (TPMAs) than solicitors’ client accounts, research has suggested.
They are willing to pay a small amount extra for the added protection they believe it provides.
The Solicitors Regulation Authority (SRA) commissioned insights and strategy consultancy Thinks to conduct so-called ‘deliberative’ research to inform the consultation issued last week on how solicitors should hold client money.
It is a qualitative research method that enables the public to make informed decisions about complex or contested topics and debate their preferences from an informed position.
There were three groups of 14 consumers each in Sheffield, London/the South-East and Cardiff. They took part in an initial three-hour face-to-face workshop, then a week-long online community, followed by a 90-minute online workshop, and then a final three-hour face-to-face workshop which aimed to build consensus around principles for the future of consumer protection in legal services.
The trade-offs involved in the various issues were explained, as were the perspectives of solicitors and the SRA as part of the process.
The Thinks report said participants were clear that “anything that can be done to reduce the risk or prevent misappropriation of funds should be the priority for the SRA in driving confidence and trust in legal services through client money consumer protections”.
Client accounts did not meet this test “because they were not seen to do a good enough job protecting client funds from solicitors who are not adhering to the rules”. These were acknowledged to be “infrequent but high impact occurrences”.
However, participants were “highly supportive” of TPMAs, which they viewed as the most effective protection for keeping their money safe due to the extra security provided by financial specialists.
“When polled at the end of the final workshop, the vast majority said they would prefer to have their money held in a TPMA, rather than a client account,” researchers said.
They recognised they might have to pay for a better, more secure service. Thinks reported: “They were comfortable with this, provided that the increase in cost is not a large one – £50 was spontaneously mentioned in multiple locations and felt to be reasonable by participants, especially as legal services were perceived as very costly.
“Another reason that participants were willing to accept extra costs was the fact that they purchase legal services very infrequently.”
While the SRA sees TPMAs as a possible long-term replacement for client account, it recognises that the market is nowhere near developed enough at the moment.
Asked about client interest, the groups said the rule should be clearer and more specific to ensure transparency.
“They believed the current rule leaves ambiguity and room for different solicitors to interpret it in different ways, and that there should be a more specific split of interest provided.
“They also believed solicitors should be more transparent in speaking to clients about this, as of those who had previously used a solicitor, none recalled having discussed interest.
“Ultimately, they did not believe it is entirely fair that solicitors are entitled to any of the interest, although they could accept this if they do not lose out on what they see as rightfully their money.”
Some participants in Sheffield spontaneously suggested that the additional interest should instead be contributed to the compensation fund.
However, the SRA also conducted a short poll of 2,009 consumers, of whom 30% had used a regulated legal services provider in the past two years (only 47% of them checked the provider was regulated before instruction though). The explanations were nothing like as detailed as those in the Thinks research received.
It found that 79% were comfortable with a regulated provider holding all their money relating to a transaction, and being responsible for managing its safety and that payments were made correctly.
This fell to 55% who were comfortable with a third-party financial and payments specialist, working with the legal services provider, holding the money instead.
Meanwhile, figures from accountants Hazlewoods said the SRA closed down 43 law firms for mishandling client money in the year to 31 October 2023, nearly twice as many as the previous year (23).
It said another 44 firms closed due to financial stress and 81 (25% of the total) because of senior lawyers retiring without being able to sort out a succession plan.
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